Yesterday, the overnight FX swap closed at 13.5%, while the weighted-average rate for the whole session printed at 13.24% (+56bp). The situation in the money market was tense, as the volume of banks’ current accounts with the CBR declined RUB 372bn to RUB 1.1tn, i.e. below the comfortable level. In addition, the CBR surprised by setting a relatively tight offering limit for the one-week repo of just RUB 1.78tn. Total demand was near RUB 2.2tn (banks basically wanted to roll over the outstanding debt), so the average rate was 12.72%. Therefore, today the banking system is to see a RUB 390bn outflow in repo funding. This would partially be offset by an injection of liquidity from the Treasury, which allocated RUB 150bn on two-week deposits at 12.53%. Nevertheless, we think that the CBR is likely to carry out an ad hoc repo auction in order to escape excessive stress in the market, since corporate profit tax is still ahead.
NDF rates saw a mixed performance in light of the overnight swings. In particular, the 1M rate declined 10bp to 13.5% (offshore) and about 21bp to 12.35% in the MICEX. On the other hand, longer tenors saw some bids, with 3M-6M up 5-10bp at 13.60–13.65%. The XCCY swap was mostly unchanged.
Yesterday, CBR Governor Dmitry Tulin said that April’s economic figures were disappointing, while the inflation peak had passed. In addition, he expressed the 'hope' that future conditions would allow the CBR to continue easing monetary policy. Overall, this underpins our view that the regulator is to cut rates 100-150bp in June. In light of this, we think it makes sense to receive front end NDFs, for those investors with access to it, while it is already priced in the domestic market.